Judges rule partially against HISA; Supreme Court may be next

Federal
regulation of horse racing moved a step closer Friday to what may be an inevitable
date with the U.S. Supreme Court when part of the government’s authority was
declared unconstitutional by appeals judges.

Even though the
Fifth Circuit Court of Appeals in New Orleans endorsed most of a Texas district
ruling in favor of the Horseracing Integrity and Safety Authority, the three
judges said the regulators overstepped their boundaries when it came to
enforcing their rules.

“HISA’s
enforcement provisions violate the private non-delegation doctrine,” judge Kyle
Duncan wrote on behalf of his colleagues Carolyn Dineen King and Kurt
Engelhardt. “The (federal) statute empowers the authority to investigate, issue
subpoenas, conduct searches, levy fines and seek injunctions, all without the Federal
Trade Commission’s say-so. That is forbidden by the Constitution. We therefore declare
that HISA’s enforcement provisions are facially unconstitutional on that
ground.”

The National Horsemen’s
Benevolent and Protective Association, which has led a three-year legal battle
against HISA, claimed a victory Friday night.

“The courts
have proven once again that the HBPA was right in our fight to protect horsemen
across the country and their constitutional rights,” NHBPA CEO Eric Hamelback said
in a written statement. “Last year’s tweak to HISA was nothing but a
meaningless attempt to appease the industry.”

That tweak took
the form of legislation that patched a constitutional leak identified
by the Fifth Circuit in a November 2022 ruling. Signed into law in December
2022 by President Biden, the new law forced HISA to do a better job answering
to the Federal Trade Commission when it came to making rules and enforcing
them.

“We agree
that the FTC’s new rulemaking oversight means (the FTC) is no longer bound by the
authority’s policy choices,” Duncan said. “In other words, the amendment solved
the non-delegation problem with the authority’s rulemaking power.”

But the Fifth
Circuit judges were clear in saying rulemaking was one thing. Enforcing the
rules was another.

“We agree with the horsemen that the FTC lacks adequate
oversight and control over the authority’s enforcement power,” Duncan said. “HISA’s
explicit division of enforcement responsibility empowers the authority with
quintessential executive functions and gives the FTC scant oversight until
enforcement has already occurred. Such backend review by the FTC does not
subordinate the authority.”

Friday’s ruling
then gave each side a win. It also gave the NHBPA and 19 other plaintiffs,
including 13 state horsemen’s groups, four track operators, the state of Texas
and its racing commission, the fuel they need to continue their legal fight.

“This is a
huge victory for horsemen and for the rule of law in this country,” said Daniel
Suhr, the lead lawyer for the NHBPA’s side. “Our Constitution protects our
freedom by ensuring regulatory power is exercised through transparent and
accountable government agencies. The Constitution does not allow HISA to run a
private police department that enforces federal law.”

Backers of
HISA were hoping the Fifth Circuit judges would have fallen in line with a
ruling in March 2023 by the Sixth Circuit. In a separate case, those federal
judges in Ohio said HISA was legal. It was only late last month when the
Supreme Court refused to hear an appeal of that opinion.

Where
momentum was on HISA’s side after that, it was swung back the other way Friday.

“We
part ways with our esteemed colleagues on the Sixth Circuit,” Duncan said
Friday.

Because of the difference of opinion between the two appeals
courts, the likelihood has grown that the Supreme Court will have to rule once
and for all on HISA.

“We are
disappointed with the court’s decision, particularly in light of the Sixth
Circuit’s strong endorsement of HISA’s constitutionality,” HISA CEO Lisa
Lazarus said in a media statement Friday night. “While the judicial review
process continues, it is critical for all racing participants to know HISA is
still the law of the land. Its rules are still fully in effect and will remain
so for the foreseeable future. We continue to focus on our mission of protecting
the safety and integrity of Thoroughbred racing.”

While the
legal wheels turn, though, HISA rules have been suspended in some plaintiff
states. The refusal of Texas to accept the federal authority led to its
simulcast signals being cut off from the rest of the country last year and,
with it, about a 90 percent handle plunge. Louisiana backpedaled last month on
its plan to loosen HISA medication standards after Churchill Downs Inc. made
clear it did not approve of the direction the state was taking. West Virginia
put its schedule of 2024 racing dates in pencil late last year based on whether
it yet might have to adhere to HISA rules.

In its media
statement Friday, the NHBPA reiterated its desire to see horse racing brought
under its own Racehorse Health and Safety Act, which would create an alternative
coalition of state racing regulators to write medication and track-safety rules
that would apply nationwide.

“It is time
to recognize the reality that HISA is fundamentally broken and cannot be fixed,”
Hamelback said. “For the survival of our industry, we must move on to the
Racehorse Health and Safety Act. Passing the RHSA will bring safety and
integrity to the industry.”

The entire
NHBPA statement Friday:

Today the
National Horsemen’s Benevolent and Protective Association and 12 state
affiliates won their second court victory as the Horseracing Integrity and
Safety Act was found unconstitutional yet again. The United States Fifth
Circuit Court of Appeals ruled unanimously that HISA violated the private
non-delegation doctrine. The Court reasoned that Congress unlawfully gave
executive governmental power to regulate the horse-racing industry over to a
private corporation, called the HISA authority. It called HISA a “radical
delegation” of governmental enforcement powers to a private corporation.

The Court
ruled that the Federal Trade Commission was given “scant oversight” of the authority,
which could execute many governmental functions on its own. In dismissing a
central legal argument from the HISA authority that HISA was based on the
relationship between the Securities and Exchange Commission and the Financial
Industry Regulatory Authority, the Court explained that HISA “differs
materially from the SEC-FINRA relationship, because the FTC lacks any tools to
ensure that the law is properly enforced.” The Court of Appeals concluded, “In
sum, we agree with the horsemen that the FTC lacks adequate oversight and
control over the authority’s enforcement power.”

This marks
the second time the Fifth Circuit has ruled in favor of HBPA in its lawsuit. On
Nov. 18, 2022, the same three-judge panel unanimously ruled HISA
unconstitutional. That time the court ruled that HISA violated the private
non-delegation doctrine because Congress gave the private corporation
legislative governmental powers. In response Congress passed a one-sentence
tweak to HISA in an effort to nullify the decision. In March of last year, the
Sixth Circuit Court of Appeals ruled that the tweak solved the problem of
giving legislative powers to the authority. Today the Fifth Circuit agreed with
that ruling but found another fatal problem. Even after the tweak, HISA still
gives unlawful executive powers to the authority. HISA still violates the
Constitution.

In September
2020, Jockey Club general counsel Marc Summers called the HBPA’s constitutional
objections to HISA an “unfounded attack,” claiming that “HISA is carefully
crafted and constitutionally sound” and “has been rigorously vetted” and
concluding that “HISA is on solid footing.”

Today, Daniel
Suhr, president of the Center for American Rights and HBPA lead counsel,
responded, “This is a huge victory for horsemen and for the rule of law in this
country. Our Constitution protects our freedom by ensuring regulatory power is
exercised through transparent and accountable government agencies. The
Constitution does not allow HISA to run a private police department that
enforces federal law.”

Eric
Hamelback, CEO of the National HBPA, concurred, “The courts have proven once
again that HBPA was right in our fight to protect horsemen across the country
and their constitutional rights. Last year’s tweak to HISA was nothing but a
meaningless attempt to appease the industry. HISA has done nothing but impose
exorbitant costs and headaches on horsemen and women with little to no benefit
for the health of horses. It is time to recognize the reality that HISA is
fundamentally broken and cannot be fixed. For the survival of our industry, we
must move on to the Racehorse Health and Safety Act. Passing the RHSA will
bring safety and integrity to the industry.”

Hamelback
continued, “RHSA is the much better alternative to the unconstitutional HISA.
RHSA works from the ground up and brings all horse-racing industry entities to
the table. The goal to achieve uniformity must be initiated with a
collaborative, veterinary science based, consensus-driven approach that sets
horse racing up for success over the long term.”

The RHSA was
introduced last year by Rep. Clay Higgins (Louisiana 3rd district), and it establishes an
interstate compact that develops and enforces scientific medication control
rules and racetrack safety rules, allowing only participating states to export
simulcast signals for interstate, offsite betting.

Congressman
Higgins stated, “This is a victory for horses, horsemen and for state
sovereignty. Constitutional rights are worth fighting for. My RHSA legislation
is far superior in every way to the current law. With the help of American
horsemen who are actually devoted to the industry and the beautiful horses we
love, I will lead the Congressional mission to repeal the unconstitutional law
that is currently crippling the horse industry. HISA is going down, and RHSA is
standing up.”

Hamelback
concluded, “The RHSA will be far less costly for horsemen than HISA, because it
will be utilizing resources already existing in the states. And it will be
constitutional and representational, allowing everyone in the industry a voice
in the rulemaking process.”

HISA CEO
Lisa Lazarus’s media reaction Friday night:

We are
disappointed with the court’s decision, particularly in light of the Sixth
Circuit’s strong endorsement of HISA’s constitutionality. While the judicial
review process continues, it is critical for all racing participants to know
HISA is still the law of the land. Its rules are still fully in effect and will
remain so for the foreseeable future. We continue to focus on our mission of protecting
the safety and integrity of Thoroughbred racing.